Bear markets are a time of significant volatility; the tide goes out, and virtually all stocks can fall, regardless of whether they're strong companies. The trick is identifying the damaged stocks with solid business fundamentals behind them because they're most likely to rebound, soaring to new highs over time.

Genetics company Invitae (NVTA -75.00%) is one of the early movers in genetic testing, a stock with immense potential. But there are risks to consider; down a staggering 95% from its high, here is why investors should consider Invitae a speculative investment.

Years of growth are great...

Genetic testing could play a huge role in the long-term future of healthcare. Precedence Research estimates the market could grow from $7.5 billion in 2020 to nearly $14 billion by 2030.

Genetic data can tell patients about their bodies, from identifying causes of conditions and diseases to helping recommend specialized medical treatments.

Invitae started from virtually nothing and has come a long way; it performed just 3,600 billable tests in 2014. As of today, the company's tested 2.83 million patients.

And the momentum has kept up; revenue grew by an average of 72% annually over the past five years.

NVTA Revenue (TTM) Chart.

NVTA Revenue (TTM) data by YCharts.

Management expects more growth, guiding for $640 million in revenue for 2022, a 40% increase over 2021.

Sustained rapid growth should give investors hope that the company achieves operating leverage, where revenue grows faster than expenses, eventually making the business profitable.

But not without making money

Unfortunately, that hasn't been the case. You can see below that free cash flow has gone further negative as revenue grows. Compare the above chart with the one below, and you'll see two curves moving in opposite directions, and that's not good.

NVTA Free Cash Flow Chart.

NVTA Free Cash Flow data by YCharts.

Invitae has existed in a bull market for most of its time as a public company. In this volatile environment, the stock has fallen to just over $2 per share, a 95% drop from its high. That presents a potential problem.

When the music stops

It's common for growing companies to lose money, burn cash, and need occasional infusions of new funds. A money-burning company's best fundraising tool is issuing new shares of stock.

Adding new shares decreases the value of existing shares (called dilution), but shareholders often don't mind because the growth makes up for any dilution. Growth stocks can carry expensive valuations, which lets the company raise money while keeping dilution to a minimum.

However, Invitae's collapse makes potential fundraising very inefficient. Suppose Invitae wanted to raise a million dollars, and the stock was $30 per share. It would have to issue roughly 33,333 shares to do so.

But at a share price of $3, Invitae would need to issue 333,333 shares to raise the same one million dollars, 10 times the number of shares in the first example. That much dilution can hurt investment returns for shareholders because it cripples per-share financials; everything is spread much more thinly across shares.

Management implied in their most recent presentation that they believe they can get through the end of fiscal 2023 before running out of cash. However, the company burned $686 million over the past year and now has $874 million. That's not a lot of slack if the company burns more than it estimates.

Invitae's stock is a fraction of what it once traded at, and that means the long-term potential could be tempting if things work out eventually, especially at a market cap of just under $600 million.

But that could require a risky leap of faith. Make sure you manage your risk by diversifying your portfolio and prepare for what could continue to be a very volatile ride for shareholders.